Market Analysis: Franchise Networks

The number of franchised dealerships in the UK has declined in the last 10 years from 6,139 to 5,077 outlets.

But such a reduction has left the continuing dealerships with better sales – the average figure per dealership across all franchises now is 502 new car sales annually, compared
with 442 in 1999, according to data gathered in the Franchise Networks 2009 report by Sewells Information & Research.

Despite predictions by some analysts that the entire network could shrink by up to 1,500 sites in the recession, the trend of the last recession would indicate otherwise.

During 1990 to 1992 vehicle manufacturers reduced the UK’s franchised networks by 412 outlets in total, and as the economy began to grow again the following two years actually saw the number of locations increase by almost 200.

However, the recession has impacted on some manufacturers’ expansion plans. Other than Fiat and Nissan, which want to fill 42 and 13 open points respectively, the remaining 151 opportunities declared to Sewells Information & Research were with lower volume franchises, most notably Mazda, Mitsubishi and Daihatsu.

Brands perceived to be offering low-cost/good value products, and happy to multi-franchise, appear poised to benefit from the recession. Daihatsu, Hyundai, Kia, Proton, SsangYong and Skoda all forecast double-digit extensions to their networks this year.

Peugeot is expected to reduce by 30 outlets, Fiat by 18 sites, Suzuki by 14 and Mazda by 7.

The document reveals that groups (dealers with two or more dealerships) continue to have a hold on the industry.

While consolidation and failures have seen the total number of dealer groups operating in the UK reduce from 536 in 2004 to 469 in 2008, these businesses have increased their share of the entire franchised network from 67.2% to 75.1% in that time.

Of the 469 groups, 21% have two sites, 46% have three to five outlets and 19% have six to 10 dealerships. Large dealer groups, which trade from 11 or more locations and which generally dominate the AM100, make up 14% of the UK franchised network.

Looking at franchise partnerships, it is evident that certain brands have a strong preference for working with retail groups, due to the dealer’s ability to achieve critical volume and
willingness to invest in facilities and standards.

All of Mercedes-Benz’s franchised dealerships are operated by groups, and Volkswagen and Audi are not far behind with 95% and 93.8% of their sites within groups respectively. For the latter two brands, this marks a significant decrease in their links with single-site owner-driver franchisees. Groups have been increasingly favoured by Honda. In 2004 37.5% of its network was with owner-drivers, but by 2008 that had reduced to 19%.